The biggest private equity firms are once again at the center of regulatory scrutiny by the U.S. Securities and Exchange Commission (SEC). This time for the alleged use of personal email accounts, text messages, and WhatsApp (META  ) to conduct business.

The use of these "off-channel" tools (which cannot be easily traced by an employer and are often not encrypted) is a direct violation of record-keeping rules. Slack (CRM  ) and Teams (MSFT  ) exploded at the start of the pandemic with sweeping work-from-home mandates. This meant that the lines between work and home were more blurred than ever before. Corporate workers began using personal apps to conduct work. The companies in question are said to be cooperating with the SEC.

Apollo Global Management (APO  ), KKR (KKR  ), and Carlyle (CG  ) are three of the companies that are said to have received letters from the SEC regarding breach of rules.

Apollo disclosed in its latest quarterly filing that "Certain of Apollo's investment adviser subsidiaries have received a request for information and documents from the SEC in connection with an investigation concerning compliance with record retention requirements relating to business communications sent or received via electronic messaging channels. As has been publicly reported, the SEC is conducting similar investigations of other investment advisers."

KKR and Carlyle included similar notices in their filings. All three aforementioned investment companies are public and therefore are required to disclose such information to investors.

The SEC issued over $1 billion in penalties as of September against 15 broker-dealers for failure to maintain electronic communications. The Commodity Futures Trading Commission (CFTC) separately issued over $700 million in penalties against 11 banks and investment firms for similar mismanagement. This includes top investment banks such as Bank of America (BAC  ), Barclays (BCS  ), Citibank (C  ), Credit Suisse (CS  ), Deutsche Bank (DB  ), Goldman Sachs (GS  ), Morgan Stanley (MS  ), and UBS (UBS  ).

The Department of Justice (DoJ) published remarks from its September Keynote Address that it is up to each Company to figure out how to comply with electronic communication rules however "the end result must be the same: companies need to prevent circumvention of compliance protocols through off-system activity, preserve all key data and communications and have the capability to promptly produce that information for government investigations."

Why are legal and regulatory authorities so laser focused on combating this issue?

Record keeping is important not just for record keeping sake but to keep companies accountable and preserve trust in the markets. Gurbir Grewal, director of the SEC's Division of Enforcement, stated that "If there are allegations of wrongdoing or misconduct, we must be able to examine a firm's books and records to determine what happened."

SEC Chari Gary Gensler issued a statement that while "This should send a message: If you mess up-and people do mess up sometimes-come in and talk to us, cooperate with our investigation, and remediate your misconduct" and that "We will strive to ensure that penalties are not seen as the cost of doing business. We will use sweeps, initiatives, and undertakings to shape market behavior."

The SEC even rewarded cases of good behavior where companies self-reported misconduct and cooperated in the investigation. The SEC has taken, an arguably, shrew position of allyship. Now whether this improves its ability to crack down on misconduct is another question.